Chicago: 312-580-0900 | Suburban: 847-831-8831 | Family Office: 312-338-7788 | Financial Planning: 312-440-5028 | Benefits: 847-831-8831

Kuby’s Commentary

Santa Claus Rally

Dec 18, 2023

Clear Path to Cuts

The foundation of the bear case for the economy and the financial markets during 2022 and 2023 was the “higher for longer” mantra from the Federal Reserve. In other words, the Fed’s tight monetary policy would lead to a deep recession before inflation reached the 2% target level that was established (without any specific logic). On Tuesday, the CPI dipped to 3.1%, supporting our suggested Fed mantra of “Higher Than Necessary.” Accordingly, the following day, the Federal Reserve finally abandoned its Uber-Hawk posturing, and its dot plot showed a forecast of cutting its key interest rate by three-quarters of a percentage point in 2024. Traders in the Fed funds futures market are actually pricing in twice that amount, or 1.5 percentage points, worth of cuts in the year ahead, according to the CME Group’s FedWatch indicator. That would reduce the benchmark funds rate to a target range of 3.75%-4%. All financial assets rallied in response, with stocks registering their seventh straight week of gains, which is the best winning streak for the S&P 500 since 2017. Small caps topped the leaderboard, with the Russell 2000 surging 5.6%, while the S&P 500 Index was up 2.5%, and the Nasdaq rose 2.9%.

Bond investors were also rewarded, with the yield on the 10-year Treasury sinking 32 basis points to 3.93% and the 2-year declining 24 basis points to yield 4.45%. The dollar slipped over 1%, and gold rallied similarly. Further downward pressure on interest rates could pressure the dollar and provide a nice tailwind for gold.

We expect further downward pressure on interest rates because we are optimistic that inflation will continue to wiggle downward, albeit not necessarily linearly. Supporting our perspective, various home rental tracking organizations have recently released data suggesting shelter costs, which are approximately 30% of some inflation indexes, are on a downward trend. For example, rent in cities like New York City and Atlanta is declining, which should leak into various inflation statistical series such as CPI in the coming months (sources: and Further, the declines in the rent component of shelter costs should meaningfully benefit inflation reports in 2024, giving the Fed a clear path to rate cuts by mid-2024, if not sooner.


In addition to the “not too hot” aspect of the downward trend in inflationary pressures, the “not too cold” dynamic of the Goldilocks scenario was supported by the report that U.S. retail sales unexpectedly rose in November as the holiday shopping season got off to a brisk start, suggesting that the economy was on track to post moderate growth, and further alleviated fears of a recession.

Hot Lump of Coal

The economic calendar is heavy with housing, manufacturing, and consumer sentiment data scheduled for release, with the focus primarily on the monthly update on core PCE. The Federal Reserve’s favored inflation gauge is expected to show a soft 0.2% month-over-month rise in November, resulting in the six-month annualized inflation rate of just above the magic 2.0% level. An unexpected “hot” number might result in a lump of coal in investors’ stockings, but we believe that outcome is unlikely.

The financial markets will be closed on Monday to celebrate the Christmas holiday. We wish you a Merry Christmas and hope the Santa Claus rally continues!

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit

The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.

Sign up to receive a weekly email with Kuby’s Commentary.

    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

    Recent Kuby’s Commentaries
    Kuby’s Commentary & Quarterly Update Archives